The European Supervisory Authorities (the ESAs, made up of ESMA, EBA and EIOPA), have published a series of letters between them and the European Commission (EC), over the proposed ending of the exemption for UCITS KIIDs at the end of 2019.
In its letter to the ESAs in July, the EC said that because the introduction of PRIIPs KIDs was delayed by a year, the review of the regulation, originally due to be completed by the end of 2018, will also be delayed. It then makes a leap, saying: “In consequence, as of 1 January 2020 UCITS … will draw up and publish PRIlPs KlDs and UCITS KlIDs”. This is presumably based on the expiry of the UCITS exemption without having completed a review to determine what should be done with them.
What is worse is that the EC didn’t even appear to consider this to be much of a problem, as the point of the letter was to ask the ESAs to produce guidance to minimise any confusion caused by advisers providing clients with two potentially conflicting documents on the same fund.
By the time it wrote again in August, the EC had conceded some ground, saying that they “recognise the challenge posed by the disclosure requirements under UCITS, PRIIPs and MiFID II … and the need to ensure consistency among them … while allowing the retail investors [to] understand both the information in individual disclosures and the combination thereof”. But there was no backing down from the original request for the ESAs to provide the guidance.
Fortunately, the ESAs see things rather differently. Their letter on 1 October was unequivocal: “we are still of the view … that an approach whereby retail investors will receive both … PRIIPs KIDs and … UCITS KIIDs as of 1 January 2020, is not satisfactory”.
In case that wasn’t clear, they then say that they “are not convinced that, from the perspective of the retail investor, the UCITS KIID information can be effectively articulated together with the PRIIPs KID information … We are doubtful that guidance can allow many retail investors to appreciate the differences in this information”.
Instead, the ESAs suggest a targeted review of PRIIPs, in advance of the delayed full review, and legislative changes “to avoid a situation where there are duplicate information requirements from 1 January 2020”.
We have now reached a point where the EC and ESAs seem to agree that UCITS KIIDs will still be around after the end of 2019 (hopefully not alongside PRIIPs KIDs for the same funds, but possibly with some tweaks). We could also be facing a review of the more contentious features of PRIIPs early in 2019, with the full review a year behind schedule. Only on the back of that will a decision be made on the long-term outlook for UCITS KIIDs- whether that means transitioning to PRIIPs KIDs or continuing as “equivalent”.
It’s not often we heap praise on the regulators, especially on PRIIPs, but we certainly hope their common sense will prevail over the EC’s plans for double pre-sale disclosure.
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